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Austerity-weary Iceland votes in national election

Jenna Gottlieb and Jill Lawless, Associated Press

Chairman of the Independence Party Bjarni Benediktsson casts his ballot Saturday April 27, 2013, as Icelanders vote in a General Election. According to polls the parliamentary election could return to power the center-right parties that led the country into economic collapse five-years ago, "The government that many people thought was cleaning up the mess is getting severely punished for the last four years," said political analyst Egill Helgason. (AP Photo/Brynjar Gauti)

REYKJAVIK, Iceland (AP) -- Five years after Iceland's economy imploded, austerity-weary voters looked set Saturday to return the parties widely blamed for the disaster to power.

Polls showed the Progressive and Independence parties, who are promising to ease Icelanders' economic pain, leading the Social Democrat-led coalition that has spent the last four years trying to pick up the pieces after the crash.

Iceland's economic recovery has been hard and uneven, and many voters are fed up.

"I think that Icelanders are craving change. The last government failed to lead us out of the economic crisis in the way people liked," said Svavar Bjorgvinsson, owner of a computer games company.

He said many voters were swayed by the center-right parties' promises of tax cuts and mortgage relief.

"Many people that have been struggling will give these parties their vote as they are seeing some light in the end of the tunnel," he said.

A shift to the right in Saturday's parliamentary election would likely shelve Iceland's plans to join the European Union, with which it has begun accession talks. Both Progressives and Independents oppose joining the 27-nation bloc.

Progressive Party chief Sigmundur David Gunnlaugsson and Independence Party leader Bjarni Benediktsson are the two most likely candidates for prime minister under the system of proportional representation used for elections to Iceland's 63-seat parliament, the Althingi.

The two parties governed Iceland for several decades, often in coalition, overseeing economic liberalization that spurred a banking and business boom — until Iceland's economy crashed spectacularly during the 2008 credit crisis.

A volcano-dotted North Atlantic nation with a population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when its main commercial banks collapsed within a week of one another.

The value of the country's currency plummeted, while inflation and unemployment soared. Iceland was forced to seek bailouts from Europe and the International Monetary Fund.

Despite being widely blamed for the meltdown, the Independents and Progressives say they are now best placed to lead the economic recovery.

The Progressives are promising to write off some mortgage debt, taking money from foreign creditors. Benediktsson's Independence Party is offering lower taxes and the lifting of capital controls that he says are hindering foreign investment.

"We believe we can do a lot for indebted households, but our plan is not to do only that" Benediktsson said after casting his vote in a Reykjavik suburb.

"I think the only way out of the economic difficulties we've had is growing the economy, and we need to create new jobs, start new investments and we have a very strong plan to start doing that tomorrow."

Whatever the outcome, 70-year-old outgoing Prime Minister Johanna Sigurdardottir has said she will retire from politics after the election. Iceland's first female — and first openly gay — prime minister, she was elected as head of a center-left alliance in 2009 on a wave of public disgust at the previous administration.

Since then, Iceland has in many ways made a strong recovery. Unemployment has fallen and the economy is growing.

But inflation remains naggingly high, and many Icelanders still struggle to repay home and car loans they took out — often in foreign currencies whose value soared after the crash — in the years of easy credit.

Some accuse the government of caving in to international pressure to compensate Britain and the Netherlands for their citizens' lost deposits in the failed online bank Icesave. Icelanders have twice rejected repayment deals agreed to by Sigurdardottir's government.

"The government that many people thought was cleaning up the mess is getting severely punished for the last four years," said journalist and political analyst Egill Helgason. "I don't know whether they deserve it. In many ways I think not. But this is politics — cruel."

Some voters say the outgoing government did as good a job as could be expected.

"We cannot forget that everything collapsed here and still health care, schools and society in general functions better than in most countries", said Jon Gunnar Bjornsson, an operations manager of one of Iceland's new, post-crisis banks.

"We still retain ownership of hospitals, the road system and the utility companies. I'm not sure we could have expected more.

"But still people are unhappy and want someone to take their debt away and shower them with golden fairy dust."

Polls close at 2200GMT (6 p.m. EDT), with full results expected early Sunday.


Lawless reported from London. Associated Press writer David Mac Dougall in Reykjavik contributed to this report.